“Canada’s payday loan industry provides a vital service to cash-strapped Canadians who are struggling to access other sources of credit in times of crisis,” said Pedro Antunes, Associate Chief Economist at the Conference, in a statement. Board. When considering strengthening the regulatory requirements for the sector, policymakers must consider the different categories of people who borrow on pay and be careful not to restrict access to credit for a financially vulnerable segment of the population. “
TWO CATEGORIES OF CUSTOMERS
According to the report, two categories of consumers use payday loans, and each has very different needs. The former is made up of people with limited assets, low incomes and a job, who rely on this system to cover their unexpected periodic expenses, or even their current needs, because they can not make ends meet. They turn to lenders because they were unable to obtain consumer credit through conventional financial channels.
The second category is made up of individuals who have a lot of assets, but temporarily lack liquidity. Economically more stable, this clientele uses payday loans as a means of temporary financing to cover unexpected expenses.
In its report, the Conference Board points out that government policies must take into account the needs of these two categories of consumers in order to prevent them from turning to “unauthorized service providers or lenders offering their services illegally over the Internet”. . The organization recognizes, however, that “provincial legislation governing the sector … in Canada already provides important safeguards against the exploitation of clients.”
BETTER EDUCING CONSUMERS
In addition to “appropriate regulation” of this area of activity, the Conference Board advocates for better consumer education as a “critical step in protecting the financial well-being of Canadians”. Such a policy “would help users to recognize approved payday lenders on the Internet and avoid illegal lenders,” says the organization. Finally, he calls for improved financial literacy “to allow consumers to easily spot interest charges on payday loans and make as sound financial decisions as possible.”
Another study published yesterday by the Financial Consumer Agency of Canada (FCAC) points in the same direction, saying that this type of loan, which now affects 4% of households in Canada, should “make the increased awareness among consumers “. Entitled Payday Loans: Market Trends, this paper is based on a survey conducted earlier this year of some 1,500 “payday loan recipients” from coast to coast.
His results show that many people do not know how expensive these loans are compared to other forms of credit. Thus, less than half of respondents (43%) know that a payday loan is more expensive than a cash advance on a credit card. In some provinces or territories, their annual percentage rate is as high as 500%!
A TREND OF CONCERN
FCAC’s report also reveals that most clients (89%) had to borrow to cover basic necessities, such as dealing with an unexpected event or paying bills to avoid a late penalty. It also shows that most users have low or modest incomes, even though 20% of respondents have family income over $ 80,000, and 7%, more than $ 120,000.
Finally, like the Conference Board, the Agency notes that Canadians who turn to payday loans often have limited access to conventional credit products. For example, 65% of respondents indicate that when they got their last loan, they did not have a credit card, while 88% did not have a line of credit.
“Borrowing money in the form of a payday loan is expensive for consumers. The use of these short-term, high-cost loans has more than doubled in Canada recently. In my opinion, this trend deserves more attention, “concludes Mary Mudeso, FCAC Commissioner.